Chancellor warned off a public sale of state's stake in Lloyds

The Chancellor has been warned against selling the first slice of Lloyds
Banking Group shares through a "Tell Sid"-style offer, and has
been advised instead to begin the disposal process with a sale to major
institutions.

Senior executives at Lloyds, as well as at UK Financial Investments (UKFI), the manager of the state's 39pc holding in the bank, have urged George Osborne to focus on using a so-called "accelerated bookbuild" process whereby the first shares will be sold to established fund managers.Photo: Getty Images

Senior executives at Lloyds, as well as at UK Financial Investments (UKFI), the manager of the state's 39pc holding in the bank, have urged George Osborne to focus on using a so-called "accelerated bookbuild" process whereby the first shares will be sold to established fund managers.

Using an accelerated bookbuild could allow the Government to sell a small stake in Lloyds within less than 48 hours without having to go through the lengthy and expensive exercise of marketing the shares to the general public.

The Chancellor is expected to announce further details of the privatisation process for Lloyds and the Royal Bank of Scotland, in which the state owns an 81pc stake, in his annual Mansion House speech on Wednesday.

He will use the speech to highlight the two banks' different states of preparedness for privatisation, strongly signalling that Lloyds will be first off the block.

A first sale of some of the Government's stake in Lloyds is thought likely over the summer.

Sir Win Bischoff, the bank's chairman, has privately told colleagues that a deal could be completed by September.

However, the Treasury has yet to appoint banks to conduct the sale and they would have to be chosen before that could happen.

An accelerated sale would most likely see the Government launch a sale of the shares after the market closes on a particular day.

Depending on the size of the stake, a deal could be priced before the next day's trading session has begun. A quick sale would reduce the likelihood of leaks before the announcement and would also minimise the fees that the state would have to pay to investment banks underwriting the disposal.

"It is clear that an accelerated institutional sale is the preferred option," said one senior official with knowledge of the planning process.

"However, everyone recognises the political sensitivities that surround any sale. Excluding retail investors from the first sale could be controversial, prompting accusations of prioritising large international institutions over ordinary taxpayers.

Vince Cable, the Business Secretary, has warned against a populist sell-off of the Government's stakes in Lloyds and RBS before the general election, amid Liberal Democrat fears that it will be used as a vote-winning tool by the Conservatives.

Asked by The Sunday Telegraph last month about a potential sell-off, Mr Cable, whose Department for Business Innovation and Skills oversees banking regulation, said: "I don't see a great hurry.

"We don't want to inflict a loss on the taxpayer and there is a lot of structural change that needs to be done, and business banking in the UK is highly uncompetitive.

"I don't think that timing should be governed by an electoral cycle. It should be governed by what's beneficial for the taxpayer and the economy."

Last night a source close to Mr Cable said that this remained "very much his current thinking" on privatisation plans.